(Bloomberg) — Goldman Sachs Group Inc. said its forecast for oil to trade at $40 a barrel for two quarters may be too low while its outlook through 2016 remains bearish because supply is set to increase.
Prices are “skewed to the upside” in the near term as gains in global crude inventories have stalled amid weather disruptions and stronger-than-expected demand, Goldman said in an e-mailed report dated March 8. Still, U.S. companies are raising equity and reducing debt, signaling that they plan to boost exploration and production activity later this year, it predicted.
“While we reiterate our out-of-consensus view that demand growth will be strong in 2015, on the back of better economic growth and low oil prices, we did not expect demand to be so strong this soon,” Goldman analysts including Damien Courvalin in New York said in the report. “Net, we reiterate our view that prices need to decline relative to the current forward curve.”
Brent crude, a global benchmark grade, has risen 3.6 percent this year after losing almost half in 2014 as U.S. production surged to the most in more than three decades. More than 3,000 drilled wells in the nation have yet to be tapped, according to Wood Mackenzie Ltd. and RBC Capital Markets LLC. Initial new output could be as much as 3 million barrels a day, estimates compiled by Bloomberg Intelligence showed.
Oil may not reach Goldman’s forecast of $65 a barrel in 2016 as U.S. producers have showed a faster-than-expected focus on financial discipline and “building an uncompleted well war chest,” according to the report.
“Producers will be better positioned to deliver strong production growth later this year and into 2016, undermining the market re-balancing,” it said. – BLOOMBERG
